New Jersey Employment Attorneys Resolve Stock Option Disputes
Aggressive legal representation to preserve the benefits you earned
Stock options and restricted stock award plans are increasingly important forms of employee compensation and can represent a significant percentage of the employee’s overall earnings. At Deutsch Atkins, P.C., our employment attorneys realize how important noncash compensation is to you. You took a risk in accepting deferred compensation with a company you’d hoped would take off. If that company has now terminated its relationship with you, or otherwise breached your employment contract, you shouldn’t be forced to leave money you’ve earned on the table. As one of New Jersey’s largest employment litigation law firms, we are committed to recovering as much value as possible for your lost stock options and restricted stock.
Risks inherent in accepting stock options and restricted stock compensation
Startups often use stock plans to entice talent to join or stay with the company. Established companies add stock plans to executive compensation packages to sweeten the pot and provide extra incentives for productivity. However, in accepting stock plans as compensation, the employee assumes a great deal of risk. Vesting is contingent on continued employment with the company and, if an employee is terminated, has a serious contract dispute, or discovers fraud or misrepresentation, the stock allocations may have no value at all.
Unfortunately, the one-sided nature of stock agreements gives employers a perverse incentive to terminate employees before stock plans vest. That forces the employee to leave a substantial amount of earned compensation behind with the company. However, employees who are wrongly terminated due to discrimination, retaliation for whistleblowing or any other unlawful reason, should know that they are entitled to recover the value of their lost stock plans, along with other monetary damages and equitable relief. Employees who leave voluntarily can often recover the value of unvested plans from their new employers.
Putting a value on lost stock options
In order to award damages for lost stock options, the court must put a value on these assets. Although courts have found it impossible to give a precise value, the law allows them to substitute a reasonable value based on:
- Intrinsic value — Difference between the exercise price and the current market price
- Potential value — Prospect of realizing a significant profit should the value of the stock rise
In litigation over stock options, the courts have developed two models for calculating value:
- Breach of contract — Courts calculate damages to a plaintiff by taking the intrinsic value on the date of the breach.
- Conversion — The court considers the possibility of a rise in value at some point after the breach, when the employee could have exercised the option for a greater profit, had the breach not prevented that purchase.
The breach of contract model is more certain, but the conversion model allows the plaintiff to recover future profits, which were the major incentive for accepting deferred compensation in the first place. Conversion also prevents unjust enrichment by an employer who could retain those future profits under the breach of contract model.
Plaintiff has no duty to mitigate in stock option litigation
Both models fail to compensate plaintiffs adequately because these models presume that the employee has the ability to mitigate damages by entering the market to cover their losses. But stock options are unique, irreplaceable financial instruments, and other investment opportunities would require the employee to take unreasonably speculative actions. For these reasons, courts have refused to impose a duty to mitigate damages on a plaintiff in a stock option suit.
Court remedies for stock options lost due to an employer’s unlawful conduct
The courts have found the conversion and breach of contract models inadequate in cases of discrimination and other unlawful conduct on the part of employers. Instead, courts have taken a flexible approach, assessing damages based on the totality of the circumstances. Available remedies include:
- Value of stock at the time of trial
- Value of stock at the time the employee had planned to exercise options
- The highest stock price during an intervening period
- Value at the date of expiration
- Reinstatement of unexpired options
- Reinstatement of options with time extensions to exercise
- Damages for forced early exercise of options
- Recovery of future stock options lost
- Value of stock options denied due to discrimination
- Issuance of new options
Some courts use the Black-Scholes model, which calculates the value of an option by looking at several factors:
- The stock price at the date the option was granted
- The duration of the option
- The volatility of the underlying stock
- Expected dividend payments
- The risk free interest rate over the expected life of the stock
At Deutsch Atkins, P.C., our employment attorneys litigate aggressively, presenting a compelling case for remedies that provide the maximum possible recovery of your stock option value.
Contact a leading NJ law firm for assistance with your unlawful termination case
Your stock plan is a significant investment in your future; don’t be afraid to fight for its full value. Deutsch Atkins, P.C. litigates aggressively to recover the greatest value possible. Call us today at 551.245.8894 or contact us online to schedule a confidential phone consultation. Our firm has offices in Bergen County, New Jersey; Rockland County, New York; and Manhattan.